How to Educate the Consumer on Your Fee in Real Estate is essential in a day and age when discount brokers abound and Big Tech disruptors are encroaching on your client list and your margins.
One way to do this is by your understanding, and then helping your clients to understand, the Risk vs Reward Ratio.
By recognizing the actual risk, including the missed opportunity of having your expertise in their transaction, consumers will take a look at the discount through different eyes and recognize it’s not quite as enticing as the Big Tech portals make it look.
One of the best ways to teach this is to start to document and share experiences in which you helped your clients to abate risk and take advantage of opportunities that would not have been done in a low-margin, high-volume model offered by disruptive technology companies.
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What’s up everybody, Justin Stoddart here and I am fired up to share with you a principle that is going to change the way that you go about positioning yourself in a very competitive market, where traditional and Big Tech competitors are squeezing your margins.
We’re going to talk about the Risk vs Reward Ratio, which, if you understand it will give you the tools to make those who are driving down the fees in the real estate industry become completely irrelevant.
But before I do that, let me remind you that I am pouring a ton of resources and value into this channel to help you rise above industry disruption, creating a successful business and a significant life. So smash that like button, hit the subscribe button, and hit that little bell notification so that you get notified every time we drop a new video.
So the backdrop to all of this that we must not ignore, is that we live in a convenience-seeking world, sometimes called the Now Economy.
That name stems from our desire for and the internet to offer immediate access to endless streams of information and options at any given time. As if takeout food isn’t convenient enough, we now have Uber Eats, is if Amazon Prime delivered in two days isn’t fast enough, we now have Amazon Now, which moves the delivery window up to two hours, you get the picture.
We want what we want, and we want it now. And technology has done a fantastic job of offering us some incredible conveniences.
Just recently Jason Abrams at the Keller Williams family reading event said: “Anytime people are given the option to swipe right and get a house, people are going to get hurt.”
So if we don’t make a few key distinctions, that yes, there can be a downside, consistent with and similar to the patterns and principles that we identified from the retail and travel industries.
The downside is that being in a rush could cause us to miss the fact that there are specific buying and selling decisions that have a more significant impact on our net worth, and the net worth of our clients and prospective clients than other decisions around these decisions, we should pause to consider how we must navigate as consumers and how you as a well paid professional must step up and into the lives of your clients and prospective clients to best lead them in these decisions.
Therefore, a critical factor in your ability to help your clients and prospective clients includes being able to help consumers understand the risk versus reward ratio of competing choices. Now this term, the risk versus reward ratio is used to help investors to minimize the risk and maximize the return. It simply illustrates the prospective risk or rewards an investor can earn on every dollar invested.
Let’s look at an example. An investment with a risk-reward ratio of one to seven suggests that an investor is willing to risk $1 for the prospect of earning $7. Alternatively, a risk-reward ratio of one to three signals that an investor should expect to invest $1 for the possibility of making $3 on his investment. Now obviously, the one to seven ratio is a better situation for the investor.
Now, consider that as real estate clients and prospective clients go about making buying and selling decisions. First, the real estate agent. And then the client needs to have an awareness about the subtle and not-so-subtle indoctrination coming from deep-pocketed big tech.
These messages convey that clients or the investor in this situation can increase their reward or the money that they receive a closing by using a lower-cost tech option for their transaction. So technology disruptors preach that by using their online discounted service, the client will get the same service is if they use you like their professional. In other words, in this scenario, they’re professing that their risk of using the tech offering is one.
On the other hand, their reward meaning the money that they get at closing due to reduced agent fees goes up small risk and a big reward. That sounds like a good deal for the client. Right? Well, no wonder so many people are going to these options. Now if this narrative is not interrupted and challenge, the client would naturally see this as a compelling offer against using a well-paid professional, why would they not same service lower cost?
Now the way to interrupt this narrative is to help the client to see that the risk of using a mostly tech offering is not $1. You see the value that you bring to your clients compared to the value that a mostly tech offering brings with high volume and low service is not the same. In this example, in which your prospective clients are deciding whether to use
As a well-paid professional, you, vs a discounted mostly tech option, your strength comes in being able to demonstrate and communicate the potential risks of not using you how they are higher than your clients have been led to believe. Raising the risk, the first number in the equation from one to something greater can be done by illustrating the cost to the clients if something goes wrong or not as well as it could have gone, or if there is a missed opportunity altogether.
Now again, raising the risk, or the first number in the ratio from one to something greater can be done by illustrating the cost to the client. If something goes wrong as that first number in this ratio, the risk goes up in the mind of the client, then the overall ratio drops. And the reward meaning any savings or benefit that they may have been collecting from choosing a mostly tech offering becomes less exciting.
For example, if the risk-reward ratio was two to three, and the reward being the second number is overshadowed by the increased risk. Well, you see that now all of a sudden, that tech offer doesn’t look quite as good as it did before.
Now when intentionally pursued and communicated, bringing the risk-reward ratio to zero, or even inverted to a negative number is actually not difficult for a Smart and Skilled agent.
And negative on the risk-reward ratio would entail that it costs the client money to not have you be a part of their transaction.
Now being able to substantiate communicate this point puts you out of reach of big tech disruptors.
Now here’s an example of the risk-reward ratio in action. A mostly tech real estate brokerage, powered by low margins and high volume fails to correctly price stage market represent or negotiate a transaction, and it costs a client $10,000 on a $400,000 sale price.
That same broker offers a fee that was, let’s say, 2% lower than your fee to get that business. Now the risk was $10,000. And the reward was only $8,000.
In other words, this client investor risked $10,000, to retain $8,000 in discounted fees. Now that equates to an inverted risk-reward ratio, which would be a bad idea for any investor and a bad idea for your clients.
Now, for you math nerds, the risk-reward ratio inverts to five to four. In other words, there is a 1.25 times more risk to the client than there is a reward.
Now, obviously, this would not be a wise investment decision for the client. rarely, if ever, is it the right decision to take a substantial risk for a small reward your clients, your prospective clients, and your upstream partners, which will be more clearly introduced shortly, all need to understand this.
Even if just at a conceptual level, they need to understand that the risks of not having your expertise working for them in their transaction far outweigh any reward of paying less to a tech offering.
Now, not only did they need your expertise in the transaction, but they also need you to educate them to better understand the downside of doing business without having you as an expert in their corner, it also becomes critical for you to begin thinking in these terms, and documenting specific stories from a myriad of different customer types, and customer scenarios in which this expertise and value are totally apparent.
Now, if you like these concepts, and you’re trying to get your head around them and figure out how you can implement them into your business, I have a couple of suggestions for you. Number one is to get a copy of my book, The Upstream Model, these concepts that I taught today, come directly from the book from chapter two of the book, you’re gonna absolutely love what’s taught there, it’s going to help you again, to rise above industry disruption and maintain strong margins and a strong client base.
Now if you’re like me, and you’re like Justin, I might not have time in this busy market to read a book and apply the principles that know that I’ve created another option for you, which is the upstream model course there’s also a link to that here: Upstreammodel.com/course.
This will give you not only some group coaching, opportunity to learn and apply but some do for you things to where you can start to reap these benefits right away.
So don’t miss out on these options. Big tech is squeezing your margins. So are your traditional competitors. It’s time for you to rise above it’s time for you to set yourself apart.
Let’s do it together. I’ll help you and remember, Go Think Bigger!